Ibotta: New IPO With Strong Growth

seekingalpha04-19

Ibotta had a successful trading debut, with shares trading up sharply and closing at over $103 per share.The company raised around $200 million in its IPO, despite the overall size being $600 million....

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Global Income Sustainable A (mth) SGD-H","LU0795875086.SGD":"JPMorgan Investment Funds - Global Income A (div) SGD"},"translate_title":"伊博塔：增长强劲的新IPO","themeId":null,"isJumpTheme":false,"ttsUrl":null,"symbols_score_info":{"ARM":1,"WMT":1,"WHR":1,"PEP":1,"NSRGY":1,"KR":1,"KO":1,"IBTA":1,"ARM.AU":1,"03165":0.6},"content_text":"Ibotta had a successful trading debut, with shares trading up sharply and closing at over $103 per share.The company raised around $200 million in its IPO, despite the overall size being $600 million.Ibotta is a profitable digital marketing company that allows consumer packaged goods companies to deliver digital promotions to consumers.Images By Tang Ming Tung/DigitalVision via Getty Images Article Thesis Ibotta, Inc. (NYSE:IBTA) traded up sharply on its first day. The tech company has a business model with growth potential, has been generating strong growth in the recent past, and unlike many other young tech companies, Ibotta is profitable already. Nevertheless, investors should consider the stock's valuation before making an investment decision - Ibotta isn't cheap. Note: Data is mainly from the company's Form S-1 Registration Statement SEC filing Ibotta's Strong Trading Debut Ibotta, Inc. began trading on Thursday. On its first day, the company saw its shares gain 17%, with the closing price standing at a little more than $103 per share. While some other recent tech IPOs have seen even better debuts, such as Arm Holdings plc (ARM), Ibotta's IPO was a success for sure. The company had, a couple of days before the IPO, announced an upsizing of its initial public offering. Ibotta, Inc. has raised around $200 million, despite the overall IPO size being around $600 million. But Ibotta sold only 2.5 million shares itself, while outside investors sold the remaining 4.1 million shares. One could thus argue that, relative to the IPO size, the cash inflow for Ibotta was relatively small. On the other hand, the fact that Ibotta only sold 2.5 million shares itself also means that dilution was not very pronounced. After all, when existing shareholders sell their shares, that does not increase the share count, thus the 4.1 million share sale by pre-IPO shareholders is not dilutive. Ibotta Overview Ibotta, Inc. is not a very famous company, but the company has grown nicely in the recent past. Ibotta is a digital marketing company that allows consumer packaged goods companies, such as companies selling packaged food and drinks, to deliver digital promotions to consumers. More than 200 million consumers can be addressed using the Ibotta Performance Network, or IPN. Ibotta works together with big retailers such as Walmart Inc. (WMT) and The Kroger Co. (KR), which has allowed Ibotta to build out the largest such promotion network (digital and item-level) in the United States. As of the end of the most recent quarter, Ibotta had a total of more than 800 clients representing more than 2,400 different brands. As we can see in the following slide, customers include global giants such as The Coca-Cola Company (KO), PepsiCo, Inc. (PEP), Nestlé S.A. (OTCPK:NSRGY), and many more. While food companies play a huge role, there are also non-food customers, such as appliance manufacturer Whirlpool Corporation (WHR) and toy company Lego: Ibotta clients (Ibotta S-1 filing) Retailers such as Walmart can use Ibotta's platform on a white-label basis, meaning they can brand it as they wish - see the above example on the bottom-right side. Ibotta's business is success-based, meaning the company does not earn money when end customers do not generate sales for Ibotta's customers such as Coca-Cola (from S-1 filing): We are pioneers in success-based marketing; we only get paid when our client's promotion results in a sale, not when a consumer merely views or clicks on the promotion. This is, I believe, advantageous when it comes to acquiring new customers. Companies such as Coca-Cola know that they won't have to pay when no revenue is being generated, which means that working with Ibotta comes with relatively low financial risk and hurdles. Expanding the customer base should thus be easy for Ibotta - they can make a convincing case that \"trying out\" Ibotta is low-risk, as customers won't have to pay if Ibotta is not generating any value. Ibotta also has a consumer business that includes the offering of a cash-back mobile app and a browser extension. These consumer-facing businesses are grouped under the Ibotta Direct-to-Consumer, or Ibotta D2C, segment. Ibotta's customers seemingly are very happy with the company's offering. Not only has the number of end customers using the Ibotta-based promotions grown over the years, but companies working with Ibotta have expanded their business with the tech company. Retainment is also high, as Ibotta notes that its customer retention rate among the top 100 customers was 96% over the last year (see S-1 filing linked above). Ibotta, which was founded just 13 years ago, has seen its business expand massively over that time frame, which has gone hand in hand with increasing financial success. Ibotta: Strong Growth And Appealing Profitability While many startups and smallish tech IPOs are unprofitable, Ibotta is somewhat of an outlier. Despite being just a little more than a decade old, Ibotta is profitable already, suggesting that the economics in the business model are highly compelling. The following chart shows Ibotta's revenue performance over the last two years: Ibotta revenue growth (Ibotta S-1 filing) Revenues have grown at a strong pace and pretty consistently. Not only was year-over-year growth positive throughout this time frame, but sequential growth was positive in every quarter except for Q1 of 2023. This can be attributed to above-average spending in each year's fourth quarter, I believe, as the annual holidays in the October to December period make this a better-than-average time for retailers and consumer goods companies. On a full-year basis, 2023 saw D2C revenues growing 27%, while overall redemption revenue grew by a hefty 75% in a single year. Ibotta also has non-redemption revenues, such as ad revenue, which is why its overall company-wide revenue number for 2023 was $320 million, which was up 52% compared to the previous year. This is, even relative to other tech companies, a highly compelling business growth rate. Over the last year, the company generated a net profit margin of 12%, which resulted in net earnings of $38 million for fiscal 2023. This was a huge improvement versus the previous year when Ibotta had still recorded a net loss of $55 million. The fact that profits jumped by around $90 million in a single year, while revenue rose by $110 million over the same time frame, suggests that operating leverage is strong and working massively in the company's favor as long as Ibotta keeps growing. The net income number does already account for stock-based compensation expenses ($20 million in FY 2023), thus this is not some type of adjusted or non-GAAP profit where significant dilution is \"hidden\" - this is the actual GAAP net profit that the company has generated last year. Delving deeper into the details, we see operating leverage at work when we look at how operating expenses changed over the last year: Ibotta operating expenses (Ibotta S-1 filing) While the company saw its revenues explode upwards by more than 50%, sales and marketing expenses were up by less than 5%. Likewise, general and administration expenses were up by around 5% as well. When we account for inflation over the last year, real expenses were almost flat - despite the explosive growth that Ibotta has experienced. To me, this suggests that management has tight cost controls and that the business model is highly attractive - there is not a lot of additional marketing spending required to drive business growth. If this trend continues in the future, then Ibotta should see its margins climb reliably. R&D expenses have grown at a faster pace than other operating expenses, but R&D expenses also were up less than revenues by far, and higher R&D expenses should, all else equal, result in better product development and can thus be seen as an investment in the company's future. IBTA Stock Valuation, Risks, And Takeaway Ibotta is an attractive company, I believe. Growth is strong, margin improvements and operating leverage are excellent, and with thousands of partner brands the company is well-established. No company is risk-free, of course. In Ibotta's case, brand diversification is strong and there is no overly large reliance on a single CPG brand, but Ibotta is reliant on retail partners. If, for example, Walmart were to end its cooperation with Ibotta, that could be a tough hit. I don't think this is particularly likely, but it is at least possible that retailers such as Walmart or Kroger decide to develop their own Ibotta-like platform at some time in the future. When it comes to recession risks, those could hurt in the discretionary categories such as toys, apparel, appliances, etc. On the other hand, consumers will be more money-conscious during a recession - they might be even more interested in getting the best deal and/or maximizing cash-backs during tough times. One could thus argue that a recession would result in higher consumer interest in Ibotta's platform - in that case, Ibotta would have some built-in recession resilience. When it comes to tech IPOs, valuation can be a risk as well. In Ibotta's case, the company is profitable, but the valuation is still far from low. Based on a share count of 30 million (according to YCharts), Ibotta is currently valued at just above $3 billion. With $38 million in trailing twelve months net profits, we get to an earnings multiple of around 80. That valuation is not as extreme compared to some tech stocks during the COVID tech bubble, but an 80x earnings multiple is still stretched. Significant future growth is priced into Ibotta's shares, and should this growth not materialize due to any reason, shares could fall significantly. I believe that Ibotta is one of the more interesting IPOs in the recent past, thanks to strong growth, a nice market position, and due to being profitable early on. On the other hand, investors should consider the valuation, which is relatively high.  Editor's Note: This article discusses one or more securities that do not trade on a major U.S. exchange. 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